Some friendly colleagues of the chancellor were recently asking him to reveal to them his grand strategy for reviving the economy, his party's political fortunes and his personal reputation. George Osborne became impatient with their notion that he could wave some kind of wizardy wand to magic away all their troubles. He responded with asperity : "My main aim this year is to avoid fucking up the budget."

They clearly have yet to heal, the searing and self-inflicted wounds left by last year's calamitous effort, a budget that unravelled over many excruciating weeks for the government, as U-turn followed uproar over pasty taxes, granny taxes, charity taxes, even taxes on static caravans. Some of the furores were about relatively trivial items involving piddling sums of money. As one Treasury minister puts it: "We got more flak for a £20m hit on Cornish savouries than we did for a £12bn hit on VAT." Mr Osborne may even have been in the right in principle on that one. Why shouldn't hot pasties be taxed at the same rate as fish and chips? What did the damage was the conglomeration of so many misjudgments.

It was after that budget that it became voguish to use the word "omnishambles" to describe the government. The backlash dealt huge damage to Mr Osborne's standing with Tory MPs. Among some of his colleagues, there was ill-concealed relish that a politician who was supposedly a dextrous grandmaster of political chess had made so many clunking blunders. They are still having a laugh at his expense nearly a year on. A Tory minister chuckled to me recently: "If you claim infallibility, you'd better not make any mistakes."

One of them was to take his eye off the ball. The week before the budget, David Cameron flew off to Washington, accompanied by a large number of his staff, for a fancy dinner with the president. Mr Osborne, a great fan of many things American, did not want to be left at home staring at a Treasury spreadsheet while his friend Dave was partying with the Obamas. So he crossed the Atlantic to join the jamboree. One of the few people left behind remarks, with only a little exaggeration: "There was just me and Larry the cat manning Downing Street."

Had the chancellor stayed at home, perhaps he might have noticed the number of items in that budget with the potential to blow up in his face. Then again, he might well have not. A year can be an aeon in politics. It is easy to forget that 12 months ago the coalition was still riding quite high, the Conservative wing of it anyway. The Tories were regularly scoring poll leads over Labour. Ministers talked hopefully – and, it turned out, completely wrongly – about the worst of the economic news being behind them. They took the hubristic decision to reduce the top rate of tax, handing Labour a gift inscribed "Tory millionaires give tax cut to the rich", a gift that will carry on giving for Labour all the way up to the next election.

The chancellor has told friends that he has learned his lesson and is doing things very differently. This year's budget will be swept for any pasty mines that might explode under his feet. He will not be risking any glamorous foreign travel in the run up to 20 March. In another contrast with last year, when budget measures were leaked weeks before the event and nearly all of it was already known by the time he stood before MPs, there has been very little informed briefing of its contents. This is partly because none of the big decisions has actually been taken yet. Reports that most of the budget is already agreed are, I am authoritatively told, complete tosh. "That's not right – that's not right at all," laughs one insider familiar with the many ongoing arguments within the Treasury and between the chancellor and cabinet ministers.

One announcement that Mr Osborne wants to make on budget day concerns Michael Heseltine's report into stimulating growth. The chancellor would like to say he is implementing the central Heseltine recommendation to devolve and localise a lot of spending decisions. But there are unresolved disputes about who precisely would take charge of what Whitehall calls "the Heseltine pot". The chancellor is also facing fierce resistance from some cabinet ministers who are reluctant to lose control of slices of their budgets.

Most of the cabinet are being kept away from any discussions that do not directly involve their departments. There is agreement between the Quad – the senior foursome made up of David Cameron, George Osborne, Nick Clegg and Danny Alexander – that they need to "keep this budget very tight" to avoid a repetition of last year's leaking competition between the Tories and the Lib Dems that contributed to making it such a shambles.

Both sides now regret that the government turned into what one minister calls "a circular firing squad". One senior Lib Dem comments: "Many of the good news things in last year's budget – good things for us as well as good things for the Tories – got lost because of all the leaks. There is no percentage for either side in repeating that." On the day, it meant that Mr Osborne was left to announce only one major measure that was not already known, a tax change disadvantageous to pensioners that he tried to slip out without anyone noticing. There was a sound argument for what became known as "the granny tax", but the result of his attempt to do it by stealth was outraged bellowing in the Tory press that he was "picking the pockets of pensioners" in headlines of a size that would usually be reserved for a meteor strike on Buckingham Palace. According to one friend: "George has been kicking himself about that ever since."

Everyone in his party will be kicking him if there is a repetition of last year's disaster. Since the new year, the Conservatives have made some very big plays for votes, including making a real-terms cut in benefits and issuing the pledge to hold an in-out referendum on membership of the European Union. Tory strategists rather hoped these would be, to use one of their favourite cliches, "a game-changer". They would soothe discontent among Conservative MPs and calm the agitation about David Cameron's leadership, force hard choices upon Labour and prove popular with voters. Yet these gambits have made no discernible difference in the opinion polls. If anything, Labour has slightly increased its advantage. The Tory party's crisis of confidence about itself and its electoral prospects remains as acute as ever. It will become more intense if, as they increasingly fear, they lose the Eastleigh byelection to their coalition frenemies. If the Lib Dems are triumphant in Hampshire, there will be even more pressure on the chancellor from Tory MPs for a budget with a transformative effect. One of the Tories agitating for a dramatic budget describes it as "our last chance to save the next election". That's hyperbole, but revealing of the state of mind on the Conservative benches.

They are not going to get what they want. The budget process is more disciplined this year and the chancellor can try to improve on its presentation. But his fundamental problem hasn't changed. One Treasury figure says: "The room for manoeuvre financially is very slim." In plain English, the chancellor has no money. It was desperation to scrabble together enough cash to make his figures look plausible last year that made him grasp at things such as the pasty tax. He is in the same hole this year – only deeper. He will yet again have to come to the Commons and admit that growth is lower and the deficit consequently higher than he predicted the year before. He will yet again have to announce another round of spending cuts, this time of about £10bn for the financial year 2015-2016.

His predicament has been made more serious by two events of the last few days. The auction of the G4 spectrum brought in less cash than he forecast in his December financial statement. Then, on Friday night, the ratings agency Moody's stripped Britain of its AAA credit rating. Because it was already expected, markets barely fluttered on that news. But the downgrading is a severe political embarrassment for the chancellor when he has repeatedly said that retaining the top rating is one of his most important self-defined goals.

There is a argument around that, having now lost triple A status anyway, he could slightly relax fiscal austerity. That is emphatically not the Treasury view. Far from prompting him to ease towards a Plan B, the chancellor will respond by redoubling his commitment to his current course. He has no scope to make the dramatic tax cuts urged on him by some in his party. As one Treasury figure puts it: "Any tax cuts will have to be paid for with tax rises elsewhere."

Tories craving a budget that will somehow miraculously transform their fortunes are going to be severely disappointed. The chancellor has no magic wand. He is right about that, at least. To use his own phrase, the best he can probably hope for this year is to "avoid fucking up" as badly as he did last year.